Mutual insurers in good shape with higher capital adequacy ratios: Aon and Namic

Mutual insurance companies in the US are in strong financial shape and less leveraged than those quoted on the stock exchange.

That’s the conclusion of a study by Aon and National Association of Mutual Insurance Companies (Namic).

The 2019 report, entitled The Mutual Factor: How Performance, Structure, and Focus Set Mutual Insurance Companies Apart, evaluates expanded performance metrics for mutual insurance companies and includes a look at how mutuals are rated under the AM Best Credit Rating Methodology Framework released in 2017.

Among the key findings of the 2019 study were that mutual insurers were slightly less leveraged than their stock counterparts in 2018, with $1.23 in policyholder surplus backing up each dollar in net premiums written compared to $1.20 for stock insurers. In 2018, the dividend ratio, a gauge of the proportion of premium returned to policyholders, was five times larger for mutuals than for stock companies. Capital and surplus in the mutual segment grew by 1.8 percent in 2018, an improvement in comparison to stock companies which saw surplus growth decline by more than three percent due to higher underwriting costs.

Mutual companies are well capitalised with median Best’s Capital Adequacy Ratio (BCAR) at the VaR 99.6 of 59 percent, 10 points higher than stock companies at 49 percent. Ninety percent of mutual companies also have the “Strongest” or “Very Strong” balance sheet strength, compared to 78 precent for stock companies.

Chris Delhey, Aon’s mutual insurance practice group leader, said the study “highlights the ongoing financial and operational strength of the mutual insurance sector in the US, both in their own right and relative to their peers in the wider insurance market”.

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